skip navigation

Search Help
Navigation Help

Tax Map Index
ABCDEFGHI
JKLMNOPQR
STUVWXYZ#

International
Tax Topic Index

Affordable Care Act
Tax Topic Index

Forms
Publications

Comments
About Tax Map

IRS.gov Website
Publication 515
taxmap/pubs/p515-001.htm#en_us_publink1000224779

Persons Subject
to Chapter 3 or
Chapter 4 Withholding

rule
Chapter 3 withholding applies only to payments made to a payee that is a foreign person. It does not apply to payments made to U.S. persons.
Usually, you determine the payee's status as a U.S. or foreign person or, if you are making a withholdable payment to an entity (or are an FFI making a payment to an account holder), the payee's chapter 4 status, based on the documentation that person provides. See Documentation, later. However, if you have received no documentation or you cannot reliably associate all or a part of a payment with documentation upon which you can rely, then you must apply certain presumption rules, discussed later.
Chapter 4 withholding applies to withholdable payments made to an entity payee that is an FFI unless the withholding agent is able to treat the FFI as a participating FFI, deemed-compliant FFI, or exempt beneficial owner. Chapter 4 withholding also applies to withholdable payments made to a passive NFFE that fails to identify its substantial U.S. owners (or certify that it does not have any substantial U.S. owners). You must establish the payee’s chapter 4 status to determine if withholding applies by applying the documentation requirements of chapter 4, generally by obtaining a Form W-8 (or, under an applicable IGA, a similar agreed form) associated with the payment, or other documentation for payments made outside of the United States on offshore obligations. See Treasury regulations section 1.1471-3(d) for details on these documentation requirements. Withholding under chapter 4 also applies to account holders of a participating FFI or registered deemed-compliant FFI that the FFI is required to treat as recalcitrant account holders.
This section titled Persons Subject to Chapter 3 or 4 Withholding applies to both chapters 3 and 4 except where otherwise indicated and except where the text clearly applies to one or the other (e.g., reduced rates and exemptions under income tax treaties).
taxmap/pubs/p515-001.htm#en_us_publink1000224780

Identifying the Payee

rule
In most cases, the payee is the person to whom you make the payment, regardless of whether that person is the beneficial owner of the income. However, there are situations in which the payee is a person other than the one to whom you actually make a payment.
taxmap/pubs/p515-001.htm#en_us_publink1000224781

U.S. agent of foreign person.

rule
For purposes of chapter 3, if you make a payment to a U.S. person and you have actual knowledge that the U.S. person is receiving the payment as an agent of a foreign person, you must treat the payment as made to the foreign person. However, if the U.S. person is a financial institution, you may treat the institution as the payee provided you have no reason to believe that the institution will not comply with its own obligation to withhold under chapter 3.
For chapter 4 purposes, if you make a withholdable payment to a U.S. person and you have actual knowledge that the U.S. person is receiving the payment as an intermediary or agent of a foreign person, you must treat the foreign person as the payee. However, if you make a withholdable payment to a U.S. financial institution or a U.S. insurance broker (to the extent the withholdable payment is a payment of an insurance premium) that is receiving the payment as an intermediary or agent, you may treat the financial institution or insurance broker as the payee if you do not have reason to know that the financial institution or insurance broker will not comply with its obligations to withhold under chapter 4. See Definitions, later, for the definition of financial institution.
If the payment is not subject to chapter 3 withholding and is not a withholdable payment, you must treat the payment as made to a U.S. person and not as a payment to a foreign person. You may be required to report the payment on Form 1099 and, if applicable, backup withhold.
taxmap/pubs/p515-001.htm#en_us_publink1000224782

Disregarded entities.

rule
In general, a business entity that is not a corporation and that has a single owner may be disregarded as an entity separate from its owner (a disregarded entity) for federal tax purposes. The payee of a payment made to a disregarded entity is the owner of the entity.
If the owner of the entity is a foreign person, you must apply chapter 3 withholding unless you can treat the foreign owner as a beneficial owner entitled to a reduced rate of withholding.
If the owner is a U.S. person, you do not apply chapter 3 withholding. However, you may be required to report the payment on Form 1099 and, if applicable, backup withhold. You may assume that a foreign entity is not a disregarded entity unless you can reliably associate the payment with documentation provided by the owner or you have actual knowledge or reason to know that the foreign entity is a disregarded entity.
taxmap/pubs/p515-001.htm#en_us_publink100015345

Special chapter 4 rules.

rule
If you make a withholdable payment to a disregarded entity owned by an FFI, for chapter 4 purposes you must determine whether you must treat the payment as made to a payee that is a nonparticipating FFI (to which chapter 4 withholding applies) or a payee that is an FFI with another chapter 4 status (such as a participating FFI). If you make a withholdable payment to a disregarded entity that is treated as a limited branch of a participating FFI or a registered deemed- compliant FFI, you must treat the payment as made to a nonparticipating FFI and withhold 30% of the payment. See the Instructions to Form W-8BEN-E for more information on payments to disregarded entities.
taxmap/pubs/p515-001.htm#en_us_publink1000224783

Flow-Through Entities

rule
taxmap/pubs/p515-001.htm#en_us_publink100015346

Chapter 3 payees.

rule
The payees of payments (other than income effectively connected with a U.S. trade or business) made to a foreign flow-through entity are the owners or beneficiaries of the flow-through entity. This rule applies for purposes of chapter 3 withholding and for Form 1099 reporting and backup withholding. Income that is, or is deemed to be, effectively connected with the conduct of a U.S. trade or business of a flow-through entity is treated as paid to the entity.
All of the following are flow-through entities.
taxmap/pubs/p515-001.htm#en_us_publink100015347

Chapter 4 payees.

rule
For purposes of chapter 4, however, a foreign entity that is a flow-through entity is a payee with respect to a payment (other than income effectively connected with the conduct of a U.S. trade or business) if the flow-through entity is:
If you make a withholdable payment to a flow-through entity that is not one of the types described above, you must treat the partner, beneficiary, or owner (as applicable) of the flow-through entity as the payee for chapter 4 purposes (similar to the determination of the payee for chapter 3 purposes) (looking through partners, beneficiaries, and owners that are themselves flow-through entities that are not one of the types described above).
In most cases, you treat a payee as a flow-through entity if it provides you with a Form W-8IMY (see Documentation, later) on which it claims such status. You also may be required to treat the entity as a flow-through entity under the presumption rules, discussed later.
For purposes of chapter 3, you must determine whether the owners or beneficiaries of a flow-through entity are U.S. or foreign persons, how much of the payment relates to each owner or beneficiary, and, if the owner or beneficiary is foreign, whether a reduced rate of chapter 3 withholding applies. For purposes of chapter 4, you must determine the chapter 4 status of the owners or beneficiaries of a flow-through entity (subject to the exceptions described above), how much of the payment relates to each owner or beneficiary, and whether withholding under chapter 4 applies. You make these determinations based on the documentation and other information (contained in a withholding statement) that is associated with the flow-through entity's Form W-8IMY. If you do not have all of the information that is required to reliably associate a payment with a specific payee, you must apply the presumption rules. See Documentation and Presumption Rules, later.
Withholding foreign partnerships and withholding foreign trusts are not flow-through entities.
taxmap/pubs/p515-001.htm#en_us_publink1000224784

Foreign partnerships.

rule
A foreign partnership is any partnership that is not organized under the laws of any state of the United States or the District of Columbia or any partnership that is treated as foreign under the income tax regulations. If a foreign partnership is not a withholding foreign partnership, the payees of income are the partners of the partnership, provided the partners are not themselves flow-through entities or foreign intermediaries. However, the payee is the partnership itself if the partnership is claiming treaty benefits on the basis that it is not treated as fiscally transparent in the treaty jurisdiction and that it meets all the other requirements for claiming treaty benefits. If a partner is a foreign flow-through entity or a foreign intermediary, you apply the payee determination rules to that partner to determine the payees.
For purposes of chapter 4, a foreign partnership is a payee of a withholdable payment if the partnership is a withholding foreign partnership that is not acting as an agent or intermediary with respect to the payment. If the partnership is not a withholding foreign partnership, the payees are the partners (looking through any partners that are flow-through entities that are not treated as payees under the chapter 4 regulations).
taxmap/pubs/p515-001.htm#en_us_publink1000224785

Example 1.

A nonwithholding foreign partnership has three partners: a nonresident alien individual; a foreign corporation; and a U.S. citizen. You make a payment of U.S. source interest to the partnership. Assume that the payment is subject to chapter 3 withholding but is not a withholdable payment. The partnership gives you a Form W-8IMY with which it associates Form W-8BEN from the nonresident alien; Form W-8BEN-E from the foreign corporation; and Form W-9 from the U.S. citizen. The partnership also gives you a complete withholding statement that enables you to associate a part of the interest payment to each partner.
You must treat all three partners as the payees of their part of the interest payment as if the payment were made directly to them. Report the payments to the nonresident alien and the foreign corporation on Forms 1042-S. Report the payment to the U.S. citizen on Form 1099-INT. You do not need to determine the chapter 4 status of the partnership because the payment is not a withholdable payment.
taxmap/pubs/p515-001.htm#en_us_publink1000224786

Example 2.

A nonwithholding foreign partnership has two partners: a foreign corporation and a nonwithholding foreign partnership. The second partnership has two partners, both nonresident alien individuals. You make a payment of U.S. source interest to the first partnership. Assume that the payment is subject to chapter 3 withholding but is not a withholdable payment. The partnership gives you a valid Form W-8IMY with which it associates a Form W-8BEN-E from the foreign corporation and a Form W-8IMY from the second partnership. In addition, Forms W-8BEN from the partners are associated with the Form W-8IMY from the second partnership. The Forms W-8IMY from the partnerships have complete withholding statements associated with them. Because you can reliably associate a part of the interest payment with the Form W-8BEN-E provided by the foreign corporation and the Forms W-8BEN provided by the nonresident alien individual partners as a result of the withholding statements, you must treat them as the payees of the interest. You do not need to determine the chapter 4 status of the partnership because the payment is not a withholdable payment.
taxmap/pubs/p515-001.htm#en_us_publink1000224787

Example 3.

You make a payment of U.S. source dividends to a withholding foreign partnership. Assume that the payment is subject to chapter 3 withholding and is a withholdable payment. The partnership has two partners, both foreign corporations. You can reliably associate the payment with a valid Form W-8IMY from the partnership on which it represents that it is a withholding foreign partnership. You must treat the partnership as the payee of the dividends for purposes of both chapter 3 and chapter 4, and you must determine the chapter 4 status of the partnership.
taxmap/pubs/p515-001.htm#en_us_publink1000224788

Foreign simple and grantor trust.

rule
A trust is foreign unless it meets both of the following tests.
In most cases, a foreign simple trust is a foreign trust that is required to distribute all of its income annually. A foreign grantor trust is a foreign trust that is treated as a grantor trust under sections 671 through 679 of the Code.
The payees of a payment made to a foreign simple trust are the beneficiaries of the trust. The payees of a payment made to a foreign grantor trust are the owners of the trust. However, the payee is the foreign simple or grantor trust itself if the trust is claiming treaty benefits on the basis that it is not fiscally transparent and that it meets all the other requirements for claiming treaty benefits. If the beneficiaries or owners are themselves flow-through entities or foreign intermediaries, you apply the payee determination rules to that beneficiary or owner to determine the payees.
taxmap/pubs/p515-001.htm#en_us_publink1000224789

Example.

A foreign simple trust has three beneficiaries: two nonresident alien individuals and a U.S. citizen. You make a payment of U.S. source interest to the foreign trust. Assume that the payment is subject to chapter 3 withholding but is not a withholdable payment. The foreign trust gives you a Form W-8IMY with which it associates Forms W-8BEN from the nonresident aliens and a Form W-9 from the U.S. citizen. The trust also gives you a complete withholding statement that enables you to associate the interest payment with the forms provided by each beneficiary. You must treat all three beneficiaries as the payees of their part of the interest payment as if the payment were made directly to them. Report the payment to the nonresident aliens on Forms 1042-S. Report the payment to the U.S. citizen on Form 1099-INT. You do not need to establish the chapter 4 status of the trust because the payment is not a withholdable payment.
taxmap/pubs/p515-001.htm#en_us_publink1000224790

Fiscally transparent entity.

rule
For chapter 3 purposes, if a reduced rate of withholding under an income tax treaty is claimed, a flow-through entity includes any entity in which the interest holder must treat the entity as fiscally transparent. The determination of whether an entity is fiscally transparent is made on an item of income basis (that is, the determination is made separately for interest, dividends, royalties, etc.). The interest holder in an entity makes the determination by applying the laws of the jurisdiction where the interest holder is organized, incorporated, or otherwise considered a resident. An entity is considered to be fiscally transparent with respect to the income to the extent the laws of that jurisdiction require the interest holder to separately take into account on a current basis the interest holder's share of the income, whether or not distributed to the interest holder, and the character and source of the income to the interest holder are determined as if the income was realized directly from the source that paid it to the entity. Subject to the standards of knowledge rules discussed later, you generally make the determination that an entity is fiscally transparent based on a Form W-8IMY provided by the entity.
The payees of a payment made to a fiscally transparent entity are the interest holders of the entity.
For chapter 4 purposes, if you are making a withholdable payment to a fiscally transparent entity, you must apply the rules of chapter 4 to determine the payee (applying the rules described earlier) and whether chapter 4 withholding applies to the payment based on the payee’s chapter 4 status. Thus, chapter 4 withholding may apply to a withholdable payment made to a fiscally transparent entity based on the chapter 4 status of the entity even when the interest holders in the entity would be eligible for reduced withholding under an income tax treaty with respect to the payment. Treaty benefits may be granted to the interest holder when the payment made is not subject to chapter 4 withholding based on the chapter 4 status of both the entity and the interest holder.
taxmap/pubs/p515-001.htm#en_us_publink1000224791

Example.

Entity A is a business organization organized under the laws of country X that has an income tax treaty in force with the United States. A has two interest holders, B and C. B is a corporation organized under the laws of country Y. C is a corporation organized under the laws of country Z. Both countries Y and Z have an income tax treaty in force with the United States.
A receives royalty income from U.S. sources that is not effectively connected with the conduct of a trade or business in the United States and that is not a withholdable payment. The chapter 4 status of A does not need to be determined because the payment is not a withholdable payment.
For U.S. income tax purposes, A is treated as a partnership. Country X treats A as a partnership and requires the interest holders in A to separately take into account on a current basis their respective shares of the income paid to A even if the income is not distributed. The laws of country X provide that the character and source of the income to A's interest holders are determined as if the income were realized directly from the source that paid it to A. Accordingly, A is fiscally transparent in its jurisdiction, country X.
B and C are not fiscally transparent under the laws of their respective countries of incorporation. Country Y requires B to separately take into account on a current basis B's share of the income paid to A, and the character and source of the income to B is determined as if the income were realized directly from the source that paid it to A. Accordingly, A is fiscally transparent for that income under the laws of country Y, and B is treated as deriving its share of the U.S. source royalty income for purposes of the U.S.-Y income tax treaty. Country Z, on the other hand, treats A as a corporation and does not require C to take into account its share of A's income on a current basis whether or not distributed. Therefore, A is not treated as fiscally transparent under the laws of country Z. Accordingly, C is not treated as deriving its share of the U.S. source royalty income for purposes of the U.S.-Z income tax treaty.
taxmap/pubs/p515-001.htm#en_us_publink1000224792

Foreign Intermediaries

rule
In most cases, if you make payments to a foreign intermediary, the payees are the persons for whom the foreign intermediary collects the payment, such as account holders or customers, not the intermediary itself. This rule applies for purposes of chapter 3 withholding and for Form 1099 reporting and backup withholding and chapter 4 withholding, provided the intermediary is not a nonparticipating FFI to which you make a withholdable payment to which chapter 4 withholding applies. You may, however, treat a qualified intermediary that has assumed primary withholding responsibility for a payment as the payee, and you are not required to withhold.
An intermediary is a custodian, broker, nominee, or any other person that acts as an agent for another person. A foreign intermediary is either a qualified intermediary or a nonqualified intermediary. In most cases, you determine whether an entity is a qualified intermediary or a nonqualified intermediary based on the representations the intermediary makes on Form W-8IMY.
For purposes of chapter 3, you must determine whether the customers or account holders of a foreign intermediary are U.S. or foreign persons and, if the account holder or customer is foreign, whether a reduced rate of, or exemption from, chapter 3 withholding applies. For purposes of chapter 4, you must generally determine the chapter 4 status of the account holders of a foreign intermediary if the payment is a withholdable payment. The determination for chapter 3 purposes is not required when withholding applies under chapter 4 (i.e., when the chapter 4 status of the foreign intermediary is a nonparticipating FFI (including a limited branch of a participating FFI (including a reporting Model 2 FFI)) or a limited FFI (as defined in Treasury regulations section 1.1471-1(b)(77)) or an entity or branch treated as a nonparticipating FFI under an applicable IGA). You make these determinations based on the foreign intermediary's Form W-8IMY and associated information and documentation. If you do not have all of the information or documentation that is required to reliably associate a payment with a payee, you must apply the presumption rules of chapter 3, and must apply the presumption rules of chapter 4 to the foreign intermediary if the chapter 4 status of the entity (when required) cannot be determined. See Documentation and Presumption Rules, later.
taxmap/pubs/p515-001.htm#en_us_publink100015348

Special rule for chapter 4.

rule
For purposes of chapter 4, a foreign person acting as an intermediary is generally not the payee if the foreign person is: If you make a withholdable payment to one of the types of entities described above, the payee is the person for whom the agent or intermediary collects the payment.
taxmap/pubs/p515-001.htm#en_us_publink1000224793

Nonqualified intermediary.

rule
A nonqualified intermediary (NQI) is any intermediary that is a foreign person and that is not a qualified intermediary. The payees of a payment made to an NQI for both chapter 3 and chapter 4 purposes are the customers or account holders on whose behalf the NQI is acting.
taxmap/pubs/p515-001.htm#en_us_publink1000224794

Example.

You make a payment of interest to a foreign bank that is a nonqualified intermediary. Assume the payment is subject to chapter 3 withholding but is not a withholdable payment. The bank gives you a Form W-8IMY and the Forms W-8BEN of two foreign persons, and a Form W-9 from a U.S. person for whom the bank is collecting the payments. The bank also associates with its Form W-8IMY a withholding statement on which it allocates the interest payment and provides all other information required to be on the withholding statement. The account holders are the payees of the interest payment. You should report the part of the interest paid to the two foreign persons on Forms 1042-S and the part paid to the U.S. person on Form 1099-INT. You do not need to establish the chapter 4 status of the NQI because the payment is not a withholdable payment.
taxmap/pubs/p515-001.htm#en_us_publink1000224795

Qualified intermediary.

rule
A qualified intermediary (QI) is a foreign intermediary described later under QI Agreement (or foreign branch of a U.S. intermediary) that has entered into a qualified intermediary agreement (discussed later) with the IRS. You may treat a QI as a payee to the extent it assumes primary chapters 3 and 4 withholding responsibility or primary Form 1099 reporting and backup withholding responsibility for a payment. In this situation, the QI is required to withhold the tax. You can determine whether a QI has assumed responsibility from the Form W-8IMY provided by the QI.
A payment to a QI to the extent it does not assume primary chapters 3 and 4 withholding responsibility is considered made to the person on whose behalf the QI acts. If a QI does not assume Form 1099 reporting and backup withholding responsibility, you must report on Form 1099 and, if applicable, backup withhold as if you were making the payment directly to the U.S. person. See Qualified Intermediaries, later, for a discussion of withholding rate pools and when a QI may include a U.S. non-exempt recipient in a U.S. payee pool.
taxmap/pubs/p515-001.htm#en_us_publink1000224796
Branches of financial institutions.
Branches of financial institutions are not permitted to operate as QIs if they are located outside of countries having approved "know-your-customer" (KYC) rules. The countries with approved KYC rules are listed at www.irs.gov/Businesses/International-Businesses/List-of-Approved-KYC-Rules.
taxmap/pubs/p515-001.htm#en_us_publink100015349
QI agreement.
Foreign financial institutions, foreign clearing organizations, and foreign branches of U.S. financial institutions or clearing organizations can enter into an agreement with the IRS to become a QI. To enter into a QI agreement effective for the period beginning on or after June 30, 2014, a foreign financial institution must have a chapter 4 status as:Certain foreign corporations that are NFFEs or foreign central banks of issue may also apply to the IRS to become QIs.
An entity may apply for QI status by completing Form 14345, Qualified Intermediary Application, and Form SS-4, Application for Employer Identification Number, and submitting these forms to the IRS along with any additional information and documentation requested by the IRS. These forms, and the procedures required to obtain a QI agreement are available at www.irs.gov/Businesses/Corporations/Qualified-Intermediaries-(QI). A QI (other than an NFFE not acting on behalf of shareholders and certain central banks) must also register through the FATCA registration website available at www.irs.gov/FATCA to renew its QI agreement and obtain its applicable chapter 4 status and GIIN (except for a limited FFI).
taxmap/pubs/p515-001.htm#en_us_publink100015350
Documentation requirements.
For documentation requirements applicable to payments made to QIs, see Responsibilities and Documentation, discussed later under Qualified Intermediaries.
taxmap/pubs/p515-001.htm#en_us_publink100015351
Reporting requirements.
For the reporting requirements of QIs, see Form 1042–S Reporting and Collective Refund Procedures,discussed later under Qualified Intermediaries.
taxmap/pubs/p515-001.htm#en_us_publink1000224801

U.S. branches of foreign banks and foreign insurance companies.

rule
Special rules apply to a U.S. branch of a foreign bank subject to Federal Reserve Board supervision or a foreign insurance company subject to state regulatory supervision. Effective July 1, 2014, you must obtain a branch’s chapter 4 status, if required for chapter 4 purposes. You can generally treat the branch as a U.S. person for a withholdable payment only when you document its status as a participating FFI, registered deemed-compliant FFI, or an insurance company that is an NFFE. If you make a payment of an amount subject to chapter 3 withholding or a withholdable payment to a U.S. branch of a foreign bank or insurance company that is a participating FFI, a registered deemed-compliant FFI, or an NFFE that agrees to be treated as a U.S. person, you may treat the U.S. branch as a payee that is a U.S. person, provided you receive a Form W-8IMY from the U.S. branch that you can reliably associate with the payment. If you treat the branch as a U.S. person, you are not required to withhold on an amount subject to chapter 3 withholding or a withholdable payment. Even though you agree to treat the branch as a U.S. person, you must report the payments made to the branch on Form 1042-S.
A territory financial institution is a financial institution as defined for chapter 4 purposes (except when it is an investment entity that is not also a depository institution, custodial institution, or specified insurance company) incorporated or organized under the laws of a possession of the United States. A territory financial institution that is an intermediary or flow-through entity is treated as a U.S. branch that agrees to be treated as a U.S. person. The special rules described in this section apply to a territory financial institution.
If you are paying a U.S. branch an amount that is not subject to chapter 3 withholding and is not a withholdable payment, treat the payment as made to a foreign person, irrespective of any agreement to treat the branch as a U.S. person for such amounts. Consequently, amounts not subject to chapter 3 withholding and that are not withholdable payments that are paid to a U.S. branch are not subject to Form 1099 reporting or backup withholding.
Alternatively, a U.S. branch may provide you with a Form W-8IMY with which it associates the documentation of the persons on whose behalf it acts. In this situation, the U.S. branch is not treated as a U.S. person, and the payees are the persons on whose behalf the branch acts provided you can reliably associate the payment with valid documentation from those persons. See Nonqualified Intermediaries under
Documentation, later.
If you cannot reliably associate the payment with a Form W-8IMY from the U.S. branch but you have obtained an EIN for the branch, you should treat the payment as a payment to a foreign person of income that is effectively connected with the conduct of a trade or business in the United States. If you cannot reliably associate the payment with a Form W-8IMY from the U.S. branch and you have not obtained an EIN for the branch, you should treat the payment as a payment to a foreign person of income that is not effectively connected with the conduct of a trade or business in the United States.
taxmap/pubs/p515-001.htm#en_us_publink1000224802

Withholding foreign partnership and withholding foreign trust.

rule
A withholding foreign partnership (WP) is any foreign partnership that has entered into a WP agreement with the IRS and is acting in that capacity with respect to its partners. A withholding foreign trust (WT) is a foreign simple or grantor trust that has entered into a WT agreement with the IRS and is acting in that capacity with respect to its owners and beneficiaries. In order to enter into a WP agreement or WT agreement effective on or after June 30, 2014, with the IRS, a WP or WT that is an FFI must have a chapter 4 status as:
A WP or WT that is a NFFE may also enter into a WP or WT agreement with the IRS.
A WP or WT must act in that capacity for reportable amounts that are distributed to, or included in the distributive share of, its direct partners, beneficiaries, or owners. A WP or WT may act in that capacity for reportable amounts that are distributed to, or included in the distributive share of, its indirect partners, beneficiaries, or owners that are not U.S. non-exempt recipients (except for a U.S. non-exempt recipient that is included in a chapter 4 withholding rate pool of U.S. payees). A WP or WT acting in that capacity must assume primary chapters 3 and 4 withholding responsibility for payments subject to withholding and must assume certain reporting requirements with respect to its U.S. partners, beneficiaries, and owners. You may treat a WP or WT as a payee if it has provided you with documentation (discussed later) that represents that it is acting as a WP or WT for such amounts.
taxmap/pubs/p515-001.htm#en_us_publink1000224803
WP agreement and WT agreement.
The WP agreement and WT agreement and the application procedures for the agreements are in Revenue Procedure 2014-47 (as may be amended). An entity applies for WP or WT status by completing Form 14345 and Form SS-4 and submitting these forms to the IRS, along with any additional information and documentation requested by the IRS. The WP or WT will be assigned a WP-EIN or WT-EIN to be used only when acting in that capacity. A WP or WT that is an FFI (other than a retirement fund) must also register with the IRS through the FATCA registration website available at www.irs.gov/FATCA to renew its WP agreement or WT agreement and obtain its applicable chapter 4 status and GIIN.
taxmap/pubs/p515-001.htm#en_us_publink1000224805
Documentation.
A WP or WT must provide you with a Form W-8IMY that certifies that the WP or WT is acting in that capacity and provides all other information and certifications required by the form, including its WP-EIN or WT-EIN. When you make a withholdable payment to a WP or WT, the WP or WT generally may also provide a certificate of a chapter 4 status permitted of a WP or WT (and GIIN if applicable). The WP or WT, when acting in such capacity, is not required to provide a withholding statement and is not required to disclose any information regarding its direct partners, beneficiaries, or owners or any indirect partner, beneficiary, or owner for which it acts as a WP or WT that is not a U.S. non-exempt recipient (except for a U.S. non-exempt recipient included in a chapter 4 withholding rate pool of U.S. payees). A chapter 4 withholding rate pool also means a payment of a single type of income that is allocated to U.S. payees when the WP provides the certification required on Form W-8IMY for allocating payments to this pool. When a WP or WT is not acting as a WP or WT with respect to an amount distributed to, or included in the distributive share of, an indirect partner, beneficiary, or owner, it must provide you with a nonwithholding foreign partnership or nonwithholding foreign trust withholding certificate on a Form W-8IMY and documentation for its indirect partners, beneficiaries, and owners that are not included in a chapter 4 withholding rate pool.
taxmap/pubs/p515-001.htm#en_us_publink1000224806

Foreign Persons

rule
taxmap/pubs/p515-001.htm#en_us_publink100015352

Rules relevant to chapters 3 and 4.

rule
A payee is subject to withholding only if it is a foreign person. A foreign person includes a nonresident alien individual, foreign corporation, foreign partnership, foreign trust, foreign estate, and any other person that is not a U.S. person. It also includes a foreign branch of a U.S. financial institution if the foreign branch is a qualified intermediary. In most cases, the U.S. branch of a foreign corporation or partnership is treated as a foreign person.
If an amount is both a withholdable payment and an amount subject to chapter 3 withholding and the withholding agent withholds under chapter 4, it may credit this amount against any tax due under chapter 3.
taxmap/pubs/p515-001.htm#en_us_publink1000224807

Nonresident alien.

rule
A nonresident alien is an individual who is not a U.S. citizen or a resident alien. A resident of a foreign country under the residence article of an income tax treaty is a nonresident alien individual for purposes of withholding.
taxmap/pubs/p515-001.htm#en_us_publink1000224808
Married to U.S. citizen or resident alien.
Nonresident alien individuals married to U.S. citizens or resident aliens may choose to be treated as resident aliens for certain income tax purposes. However, these individuals are still subject to the chapter 3 withholding rules that apply to nonresident aliens for all income except wages. Wages paid to these individuals are subject to graduated withholding. See Wages Paid to Employees—Graduated Withholding.
taxmap/pubs/p515-001.htm#en_us_publink1000224809

Resident alien.

rule
A resident alien is an individual who is not a citizen or national of the United States and who meets either the green card test or the substantial presence test for the calendar year.
  1. 31 days during the current calendar year, and
  2. 183 days during the current year and the 2 preceding years, counting all the days of physical presence in the current year, but only 1/3 the number of days of presence in the first preceding year, and only 1/6 the number of days in the second preceding year.
In most cases, the days the alien is in the United States as a teacher, student, or trainee on an "F," "J," "M," or "Q" visa are not counted. This exception is for a limited period of time.
For more information on resident and nonresident status, the tests for residence, and the exceptions to them, see Publication 519.
taxmap/pubs/p515-001.htm#en_us_publink1000224810
Note.
If your employee is late in notifying you that his or her status changed from nonresident alien to resident alien, you may have to make an adjustment to Form 941 if that employee was exempt from withholding of social security and Medicare taxes as a nonresident alien. For more information on making adjustments, see chapter 13 of Publication 15 (Circular E).
taxmap/pubs/p515-001.htm#en_us_publink1000224811
Resident of a U.S. possession.
A bona fide resident of Puerto Rico, the U.S. Virgin Islands, Guam, the Commonwealth of the Northern Mariana Islands (CNMI), or American Samoa who is not a U.S. citizen or a U.S. national is treated as a nonresident alien for the withholding rules explained here. A bona fide resident of a possession is someone who:
For more information, see Publication 570, Tax Guide for Individuals With Income From U.S. Possessions.
taxmap/pubs/p515-001.htm#en_us_publink1000224812

Foreign corporations.

rule
A foreign corporation is one that does not fit the definition of a domestic corporation. A domestic corporation is one that was created or organized in the United States or under the laws of the United States, any of its states, or the District of Columbia.
taxmap/pubs/p515-001.htm#en_us_publink1000224813
Guam or Northern Mariana Islands corporations.
A corporation created or organized in, or under the laws of, Guam or the CNMI is not considered a foreign corporation for the purpose of withholding tax for the tax year if:
taxmap/pubs/p515-001.htm#en_us_publink1000224814
Note.
The provisions discussed below under U.S. Virgin Islands and American Samoa corporations will apply to Guam or CNMI corporations when an implementing agreement is in effect between the United States and that possession.
taxmap/pubs/p515-001.htm#en_us_publink1000224815
U.S. Virgin Islands and American Samoa corporations.
A corporation created or organized in, or under the laws of, the U.S. Virgin Islands or American Samoa is not considered a foreign corporation for the purposes of withholding tax for the tax year if:
taxmap/pubs/p515-001.htm#en_us_publink1000224816

Foreign private foundations.

rule
A private foundation that was created or organized under the laws of a foreign country is a foreign private foundation. Gross investment income from sources within the United States paid to a qualified foreign private foundation is subject to withholding at a 4% rate (unless exempted by a treaty) rather than the ordinary statutory 30% rate.
taxmap/pubs/p515-001.htm#en_us_publink1000224817

Other foreign organizations, associations, and charitable institutions.

rule
An organization may be exempt from income tax under section 501(a) of the Internal Revenue Code and chapter 4 withholding tax even if it was formed under foreign law. In most cases, you do not have to withhold tax on payments of income to these foreign tax-exempt organizations unless the IRS has determined that they are foreign private foundations.
Payments to these organizations, however, must be reported on Form 1042-S if the payment is subject to chapter 3 withholding, even though no tax is withheld.
You must withhold tax on the unrelated business income (as described in Publication 598, Tax on Unrelated Business Income of Exempt Organizations) of foreign tax-exempt organizations in the same way that you would withhold tax on similar income of nonexempt organizations when the organization does not provide you a Form W-8ECI to certify that the income is effectively connected with a U.S. trade or business of the organization.
taxmap/pubs/p515-001.htm#en_us_publink1000224818

U.S. branches of foreign persons.

rule
In most cases, a payment to a U.S. branch of a foreign person is a payment made to the foreign person. However, you may treat payments to U.S. branches of certain foreign banks and foreign insurance companies (discussed earlier) that are subject to U.S. regulatory supervision as payments made to a U.S. person, if you and the U.S. branch have agreed to do so, and if their agreement is evidenced by a withholding certificate, Form W-8IMY. For this purpose, a territory financial institution acting as an intermediary or that is a flow-through entity is treated as a U.S. branch.
taxmap/pubs/p515-001.htm#en_us_publink100015353

Additional Rules
Specific to Chapter 4

rule
A payee may be subject to chapter 4 withholding only if it is a foreign entity. A foreign entity for chapter 4 purposes means any entity that is not a U.S. person and includes a territory entity as defined in Treasury regulations section 1.1471-1(b)(129).
A foreign entity is subject to chapter 4 withholding if it is a nonparticipating FFI or a passive NFFE that does not provide the appropriate certification regarding its substantial U.S. owners. A nonparticipating FFI is an FFI other than a participating FFI, deemed-compliant FFI, or exempt beneficial owner. See Definitions, later, for the definitions of these terms. A passive NFFE is a NFFE other than a publicly traded corporation, certain affiliated entities related to a publicly traded corporation, certain territory entities, active NFFEs, and excluded FFIs.
For chapter 4 purposes, a U.S. person does not include a foreign insurance company that has made an election under section 953(d) if it is a specified insurance company and is not licensed to do business in any state. Notwithstanding the foregoing, a withholding agent should treat such entity as a U.S. person for purposes of documenting the entity’s status for purposes of chapters 3 and 4.